Wheat may be entering downtrend

Right now is probably a pretty good time to forward contract some of this year's wheat crop, according to a Kansas State University (K-State) grain market analyst.

The futures market for hard red winter wheat appears to be entering a downtrend, says Mike Woolverton, K-State Research and Extension agricultural economist. However, Woolverton cautions against contracting more than what is covered by crop insurance.

"Last year, some guys got in a bind because they couldn't deliver," says Woolverton, referring to the April freeze that heavily damaged or destroyed much of the central Kansas wheat crop.

The freeze, combined with problems in other major wheat growing regions around the world, led to record-low world wheat stocks.

"We're at a 62-year low for carryover in the U.S.," Woolverton says. "We have to go back to 1947-48 to find the last time stocks were this low."

Global stocks are at a 30-year low, he says.

However, Woolverton said, the United States has one of the few remaining supplies of milling quality wheat right now, so exports have soared. Also helping boost U.S. wheat prices was a short southern hemisphere wheat crop. Woolverton says political issues in Argentina have restricted wheat exports from that country and drought in Australia led to a short crop there.

"We'll have to see how harvest in the northern hemisphere looks before we know how much it will do to replenish world supplies," he says.

Getting world stocks back to previous levels could take two years of good crops, Woolverton says, during which time he expects wheat prices to remain strong. He does believe, however, prices will be lower come harvest time in Kansas.

"The USDA is forecasting prices to be about $6 (per bushel) by then," he says of hard red winter wheat. "But I'm not sure they'll go down that low." Kansas City Board of Trade wheat futures for July delivery -- the 2008 new crop contract -- has traded as high as $13 per bushel, but has dropped back below $10, closing at $9.80 per bushel on March 31.

Woolverton says he's concerned about how the crop is starting to look in areas of the Great Plains. A cool, wet spring is slowing crop development and the wheat is smaller than it usually is this time of year. Growing conditions are less than ideal in Texas, where the U.S. Department of Agriculture's National Agricultural Statistics Service pegged 47% of that state's wheat crop at poor or very poor as of the week ended March 30.

Conditions are better to the north, but Woolverton said he's not sure a good crop in central and eastern Kansas will be quite what it takes to add up to a normal state wheat crop. Kansas wheat was rated 20% poor or very poor, 36% fair and 44% good to excellent the week ended March 30.

World supplies for corn and soybeans are tight right now as well, which Woolverton says may help keep wheat prices high.

"There's no margin for error in these grains right now," he says. "We need good crops and a good growing season, or these markets could get even crazier."